Debt Trap Diplomacy

Debt trap diplomacy. This is where a country sets up bilateral relations with another country and extends excessive credit to the debtor with the knowledge that the debtor country will be unable to honour its repayments. It is quite possible that, for almost a decade, a global superpower has been exercising debt-trap diplomacy to increase its global influence. The country in question is China.

For the first time, in 2013, Chinas’ president, Xi Jinping, publicly expressed his intentions to recreate the ancient Silk Road. The Silk Road was a trade route which linked China and the West. Goods and ideas would flow between the East and West, leading to vast economic, political, cultural and religious developments between the nations and empires along the Silk Road.

In two conferences, one in Kazakhstan and the other in Indonesia, Xi set out the two segments of what would be a multi-trillion-dollar infrastructure project, that would span 3 continents and touch 60% of the world’s population, The Belt and Road initiative (BRI). The first segment of the BRI would be a series of on-land infrastructure projects which would range from South America to Asia. The second segment of the BRI would be a Maritime Silk Road which would link China to the rest of the world via maritime trade lanes through ports located around the world.

Examples of some of China’s largest BRI projects include a railroad which runs from London to China, gas lines that run from the Caspian Sea to China and High-speed railroads which link up the South East of Asia. Other projects consist of oil refineries in Saudi Arabia, industrial parks in Belarus, power plants in Vietnam, coal mines in Mongolia and fibre optic networks in Pakistan, just to name a few of the projects.

The Belt and Road initiative marks a very important turning point in China’s foreign policy strategy. Up until the late 1980s, China exercised an isolationist stance on its foreign economic strategy. The former Chinese leader Deng Xiaoping embodied this when he stated that it was important to “hide your strengths and bide your time.” Thus, the fact that China is now getting so involved in regional economics shows a complete switch in Chinas’ foreign policy.

Not only did China sign agreements with 60 countries in 2018, but in the space of two years, China has more than doubled the number of BRI signatories to 138 countries today. This was thanks to Chinas’ smart marketing which allowed the plan to be seen as a win-win for signatories. For many countries in Asia, taking Chinas’ loans, which are part of the BRI, is a no brainer. A lot of the signatories suffer from stagnating economies or underlying corruption issues. Thus, when China, a global powerhouse, is offering loans, it is a once in a lifetime opportunity. For most of the signatories of the BRI, it is very unlikely that any significant investment will come from the West. To add to this, loans from the West are described as “time-consuming and lengthy” by the World Bank. Thus, taking Chinas’ readily available, relatively fast loans is seen as the only viable option for a better future in these nations.

China is lending to countries all over the world, regardless of political or regime differences. Be it authoritarian governments like Saudi Arabia, Azerbaijan and Belarus or military regimes in Thailand, China if funding projects globally. China is even lending to countries such as Afghanistan, Ukraine, Yemen, and Iraq, countries that have been splintered with internal conflicts for decades.

Stagnating economies and the huge cost of these projects has meant that the future of some nations hinge on the economic benefits of the BRI. One such country is Montenegro. Montenegro gained independence from Serbia in 2006 and has since struggled to make significant economic progress. As part of the BRI, China is building a highway through the country, which is estimated to cost around 3.2 billion dollars, of which China is loaning Montenegro 1 billion dollars. Whilst the project will help modernise Montenegro and its economy, the IMF (International Monetary Fund) and the World Bank believe that the loan, which is to be paid back at 2% interest between 2020 and 2040, threatens the long-term stability of the country. The World Bank estimates that by taking this loan, Montenegro’s public debt as a share of GDP will rise above 80%. This means that if Montenegro cannot finance the rest of the project or if the projected return on investment for the project is not realised, then the country may go bankrupt. To add to this, the contract that China has with Montenegro stipulates that if Montenegro defaults on its loan repayments, which it is likely to do, China can take part in its territory.

It is due to lending to countries like these, that have underlying issues or unstable economies, that have caused people to point towards China in the belief that they are exercising debt-trap diplomacy. It would be obvious, especially to a developed country like China, that many BRI signatories are likely to default on repayments and due to the contractual terms of the BRI, China would be able to cease the signatory’s infrastructure and possibly some territory.

Examples of countries that have defaulted on repayments have already begun to crop up, one example being Laos. In 2016, as part of the BRI, China and Laos planned to build a high-speed railway through the country. The railway was projected to cost 6 billion dollars, which is an exceptionally large amount when you consider that Laos’s annual GDP is just 13.7 billion dollars. By lending such a large amount of credit to Laos, China would have been aware that Laos would eventually default on its repayment. In September of 2020, this turned out to be true. Reuters published a report stating that due to Laos’s snowballing debts, the majority of which it owned to China, it has been forced to cede control of its national power grid to a state-owned Chinese company, China Southern Power Grid Co.

Laos is not the first country to default on its payment, it is just one example. In 2010, China lent Sri Lanka 1.5 billion dollars for a new deep-water port. It is located in the middle of the Indian Ocean, a key maritime trading lane used for global trade. Whilst Sri Lanka has enjoyed strong economic growth for over a decade, by 2017 it was clear that it would fail to meet its debts with China. As a result of this Sri Lanka handed over the new port, and 15,000 acres of land, to China in a 99-year lease. This is similar to the situation with Pakistan and the Gwadar port, which China now has a 40-years lease over.

It is due to this high-risk lending, and Chinas’ acquisitive contractual terms, that have linked China to the String of Pearl’s theory. The String of Pearl’s theory is a geopolitical theory which links China’s vast economic and trade infrastructure to China’s need to secure key maritime trade routes and chock points in the Indian Ocean. Each “pearl” represents a specific port project that China is involved in. This theory suggests that by connecting these ports China would create a chain of hubs, serving as economic centres and military/surveillance outposts for the Chinese army. This theory can explain why, despite not get its money back, China continues to lend to countries that are bound to default on their loans.

The combination of the String of Pearl’s theory and Chinas’ increased regional influence has caused global powers, especially those in the West, to heed more interest towards Chinas’ intention. For decades America has enjoyed the status of being the lone global superpower, but with China’s economic growth, regional influence and military might, this is at threat. Surprisingly, America is partly to blame for creating a political sphere where China could use debt-trap diplomacy and increase its regional influence so fast. Donald Trump’s rhetoric, especially his America First stance on foreign policy, has caused a vacuum of leadership in Asian and Africa. A lot of countries in these regions, who relied on America for support, have been made to feel alone. China was, and is, perfectly positioned to take advantage of this, which it has done via the Belt and Road Initiative.

Whilst China’s debt-trap diplomacy is deplorable, some journalists have expressed further concerns on China’s growing regional and global influence, especially via the BRI. This is due to Chinese military guidelines of which the 2013 report from the “Academy of Military Science” stated that BRI sites must “provide support for overseas military operations or act as a forward base for deploying military forces overseas.” This is part of China’s civil-military fusion which states that all Chinese companies, including ports, are legally required to support the Chinese military at both times of war and peace. This has caused foreign intelligence to fear that the BRI is a covert plan to increase its foreign presence and allow for increased military activism. This combined with the placement of the BRI’s maritime Silk Road ports means that China will likely possess indirect control on global trade. The BRI projects have also helped China with securing their future interests. Chinas’ 40-year lease on Pakistan’s port in Gwadar will serve as a secure trade route for Chinese goods to enter the Middle East, as the port sits at the mouth of the Persian Gulf, and by building ports in Myanmar and Cambodia China can control the Strait of Malacca, a major chokepoint for Chinese exports.

However, it is debatable how realistic and worrisome China’s increasing power should be. On the one hand, it should be feared as the Chinese government is becoming increasingly oppressive towards its own people. This is personified by its crackdown on those who practise religion in China. This not only affects Muslims, who have been particularly oppressed, but all faiths as Communism is incompatible with religion. With over a thousand religions being recognised globally, China only recognises five of them, Buddhism, Catholicism, Daoism, Islam, and Protestantism. Even amongst the group of recognised religions, freedom of religion is being eroded. Chinas’ negative perception of religion can be dated as far back as 1966. 1966 was the start of China’s Cultural Revolution were Buddhists, along with other traditional religions, were arrested and persecuted for exercising their faith. It appears that these negative perceptions towards religion have been rebirthed in China with Xi Jinping who is reportedly arresting Christians for celebrating Christmas, demolishing Buddhist statues and putting Muslims in concentration camps in Xinjiang.

There are also growing security concerns on how China uses public data to monitor the life of its citizens. This is the reason that the race to 5G was so intense, the West feared that if China developed 5G technology first then the data of those who used 5G would be used by the Chinese government. The Chinese regime is also one of the strictest when it comes to censorship, limiting the content that the public has access to. Whilst using social media to criticise the government is normal is the UK, in China this could get you arrested. Movements like the #Metoo movement, a social movement against sexual abuse and harassment, have been banned in China as Chinese figureheads where being exposed. There are also complete blocks on certain topics, the most prominent example being the removal of any reference to the Tiananmen Square massacre of 1988. Between the 15th of April and 4th of June 1988, students congregated in Tiananmen Square, China, to protest the Communists governments control on the economy. The Chinese military was sent in and shot indiscriminately into the crowd killing hundreds, if not thousands. Whilst this incident plays a major role in Chinas’ modern history, the incident itself is blocked from the knowledge of Chinese citizens. All internet links, newspapers and articles that are connected to the incident are blocked or have been erased.

Regarding human rights and civil liberties, China is not looked upon favourably. The CATO institution ranked China 141st in terms of its Human Freedom Index, which supports the Economist classification that China is an authoritative regime. This may justify why the West fears the growth of Chinas’ regional influence.

On the other hand, the possibility of China exercising military influence is very overplayed in Western Media. China has an estimated 4 military bases around the world, which can be compared to America which has over 800. The 2020 US defences budget amounted to 738 billion dollars whilst China spent a mere 178.2 billion dollars, in the same period. Thus, it is unlikely that militarily China poses any immediate threat to its surrounding region.

When it comes to Chinas’ intentions to increase its regional and global influence, many nations also try to achieve this. China cannot be blamed for wanting to secure its export infrastructure. China is the world’s leading exporter and it has been for some time, and in a world with growing hostilities, such a nation must secure one of its greatest sources of income. Arguably, the reason that other countries do not have their own BRI styled projects is simply because they cannot afford them. China has the second-largest economy in the world, with America having the largest. But with Donald Trumps’ America first stance on foreign policy, it is very unlikely that America will see such expansion on foreign infrastructure anytime soon.

Finally, it is arguable to what extent China can be blamed for countries defaulting on repayments and property being ceased as a result. The signatories of the BRI signed a contract with China and by doing so they agreed to its terms. There was no duress or compulsion to sign the agreement and like any investment, the BRI has its inherent risks. Each country would have had its own economists and experts to inform the government whether they should take the deal. Thus, when countries do default on repayment and China does cease territory or infrastructure, China is merely carrying out what the countries agreed to. China cannot be blamed for carrying out its contractual rights.

Whilst on face value the BRI seems to be an opportunity for China to extend relationships with foreign nations, whether this is the true intention of Xi Jinping is unclear. Politically there is evidence that the BRI is indirectly being used to China’s advantage. For example, with the onset of the Uighur oppression in China and with countries like Pakistan, a prominent Muslim nation, being silent. The Belt and Road initiative may be the price China has paid to keep nations at bay whilst they commit further human right violations and introduce increasingly oppressive policies. It is a reality that countries like Pakistan cannot afford to sever its ties with China. Thus, could the BRI investment be the reason that countries have not publicly condemned Chain and could Pakistan’s silence be a sounding board of how the BRI’s 138 signatories will react if Chinas’ military activism is increased?